Political Hypocrisy Provides Cover for Fed on Inflation
From 2016 to 2020, Republicans were constantly trying to play up the economy. You’ll recall Donald Trump claiming it was the greatest economy in history. Meanwhile, Democrats were trying to play it down. Now, the roles have reversed. Since the Democrats own the economy now, they’re talking about how great the recovery is while Republicans are sounding warnings. This political hypocrisy is letting the real culprit get away without blame.
We saw this political hypocrisy on display during Jerome Powell’s recent testimony before the House Select Committee on COVID-19. The Democrats on the committee took the opportunity to grandstand about how great the economy is doing.
They own the economy and they want to pretend that everything is great. Their questions and statements focused on what a good job Powell is doing. It’s interesting that the Democrats are the ones that are trying to play down the inflation fears. They’re the ones that are trying to agree with Powell and reiterate the fact that everything is transitory and so we’ve got nothing to worry about.
The Democrats don’t want to admit there is an inflation problem because that would be a blemish on this otherwise wonderful economy.
Meanwhile, the Republicans are pushing Powell on inflation and talking about it as a tax. But they’re not blaming Powell or the Fed. They’re placing the blame on Biden and the Democrats’ spending.
They’re not even really trying to blame the Fed for all the money printing. They’re just blaming Biden for all the money spending. But of course, Biden couldn’t be spending any money if the Fed wasn’t printing it. But it seems like nobody really wants to call the Fed to task. Nobody really wants to blame Powell for anything. The Republicans simply want to blame Biden for everything.
Of course, Powell doesn’t want to accept any responsibility for the inflationary pressures. He’s coming up will all kinds of reasons for inflation, most of them relating to the reopening of the economy. He doesn’t mention that perhaps printing trillions of dollars and inserting them into the economy has contributed to rising prices. And he focuses almost exclusively on supply issues.
But the biggest problem that Powell completely ignores, the elephant in his living room, is the demand created by the Fed. All of the money printing — that is the problem. But Powell doesn’t even acknowledge that it’s played a role. He wants to completely blame the private sector for any increases in prices and absolve the Fed of any blame.
Powell doesn’t even acknowledge the Fed’s contribution to the problem. Meanwhile, nobody in Congress, not even the Republicans, will point their finger at the Fed and challenge Powell.
Economist Milton Friedman once said inflation is anywhere and everywhere a monetary phenomenon. If inflation is anywhere and everywhere a monetary phenomenon, well then how can the Federal Reserve not play a role in inflation when it’s the only one that creates the money?
The Republicans on the committee were engaging in pure hypocrisy. They wanted to call out Joe Biden for contributing to inflation because of all the deficit spending.
The real hypocrisy is they don’t accept any responsibility for the massive deficit spending that occurred under President Trump. When Donald Trump was ramping up the deficit, when he was increasing government spending at the same time he was decreasing government revenue and blowing up the deficit, none of the Republicans were against it. In fact, they almost all voted for it. So apparently, if a Republican president wants the Fed to print a bunch of money to finance Republican deficits, well, that doesn’t cause inflation. But when the Federal Reserve prints a bunch of money to finance Democratic deficits, well then that’s a problem.
When you step back and look at it objectively, the Republicans have no credibility on this issue because most of them gave Trump a pass.
The Republicans also talked a lot about the supplemental COVID-19 unemployment benefits and the problems created by paying people not to work. But those benefits started when Trump was president and they were passed by a Republican Senate. This is another example of political hypocrisy. Republicans wouldn’t fight it when they had the chance. Now that they are in the minority with nothing to lose, suddenly this is a big problem.
But this is simply politics as usual. Democrats and Republicans work behind the scenes together and fingerprint at each other in public. And while they flip-flop back and forth – the real culprit – the Federal Reserve escape unscathed.